1. Field of the Invention
The present invention relates to security deposits used to secure transactions. In particular it relates to security deposit guarantees which are based on credit card accounts.
2. Description of the Related Art
Consumers often wish to acquire property and services in the context of agreements that require the transfer of some form of collateral to a seller. Such collateral often takes the form of a security deposit. Security deposits typically are required by sellers (e.g., landlords, hotel operators, cellular telephone retailers and service providers, car leasing companies, etc.) in the context of reservations and agreements to mitigate risks associated with non-payment, contract non-compliance, or to ensure the safe return of property at the end of an agreement term.
For example, in the case of reservations for hotels, restaurants, and car rentals, consumers often are asked to deposit their credit card numbers to ensure that they will honor their reservations. Upon receiving a request for a reservation, a credit card processing merchant "freezes" or places a credit hold on part of a consumer's credit line by processing the amount of the reservation (e.g., an amount equal to an anticipated charge) as a conventional credit card authorization request. If the credit card processing merchant (e.g., a hotel) later wishes to claim the amount of the frozen credit line, the merchant submits the previously authorized charge slip (or other form of charge notice) to a credit card processor for deposit.
The above-described method of obtaining a security deposit by placing a freeze on a portion of the cardholder's available credit line suffers from severe shortcomings. On a routine basis, typically every seven days, credit card issuers invalidate all pre-processed authorizations and credit line freezes that have not matured into actual deposits of charges. Hence, such a freeze cannot be used for apartment or car rentals because the duration of such a lease is typically at least twelve months. Furthermore the freeze on the consumer's credit card account only remains in effect for as long as the credit card issuer allows regardless of whether the security of the freeze is still needed or not by the merchant. In other words, the time period or "term" of the credit line freeze is set independently of the agreement between the cardholder and the credit card processing merchant. Thus, a merchant has to determine when a particular freeze will lapse based upon the specific rules of each credit card issuer. When the freeze lapses, the merchant is forced either to obtain another freeze, or transfer property without any form of security.
In addition to credit card reservations based on credit line freezes, there are many other situations in which security deposits are required. Such other situations often require cash-based security deposit payments to be made prior to the transfer of property or other similar rights. In many instances, however, security deposit payments present sizable barriers to entry for many consumers. Every year millions of people are unable to move into new homes or buy or lease certain types of products because they are unable to make security deposit payments to landlords and other merchants. For example, a person may meet every landlord screening test in regard to the rental of a new apartment, but not be allowed to execute a lease agreement with the landlord because the person cannot make a security deposit payment equal to one or two month's rent. Additionally, many people are declined the rental of cellular telephones because they cannot make security deposit payments to a cellular telephone dealer to ensure the safe return of cellular equipment or the compliance with certain cellular telephone service contracts. Furthermore, while many prospective customers may be able to afford monthly lease payments associated with a new automobile, they are often unable to enter into an automobile lease agreement because they cannot make a security deposit payment equal to at least one extra car payment.
As such, the inability of many people to make cash-based security deposits has created a buying power problem. That is, by not having available resources to make a security deposit payment, a person is inhibited from acquiring good, services, or other property for which he would be able to afford monthly or periodic payments. Additionally, in the case that a person can make a security deposit payment, doing so results in transferring money that will be held in trust during the period that an underlying agreement (e.g., a lease agreement) remains in effect. Accordingly, a buying power problem is realized by those who are able to make a security deposit payment in that any funds held in trust by a landlord, for example, remain out of control and use of the customer.
As such, consumers have limited options aside from making cash-based security deposits in the context of agreements requiring the same. Such limited options include checks, personal loans from banks or private parties, and credit card cash advances. At best, checks allow consumers to post date a draft to a date on which the consumer's bank account will maintain funds sufficient to cover the draft amount. Merchants that accept such post-dated checks receive no guarantee that the same will ever be good or that the merchant will ever be able to receive the funds specified by the consumer's check. Accordingly, merchants who accept such post-dated checks run the risk of transferring property without any guaranteed form of security.
Although a personal loan from a bank can allow a consumer to make a security deposit payment, such a loan can be difficult to obtain. Banks are reluctant to loan money in the absence of collateral. Accordingly, a personal loan from a bank, especially for a tenancy interest in property, is not a practical option.
With checks and personal loans not being adequate cash alternatives that may be used to make a security deposit payment, many consumers turn to credit card cash advances. Such cash advances are well known and often are issued directly as cash payments from banking or other institutions or indirectly through convenience checks that subsequently may be used by cardholders to pay the [orders?] of recipients of their choice. Although quite popular, cash advances are not without their problems. For example, credit card issuers often charge interest rates or transaction fees for cash advances that are significantly higher than their regular interest rates. Such charges often result in large finance charges that are difficult for cardholders to bear in addition to them servicing the debt associated with the principal amount of their cash advances. Accordingly, the issuance of a cash advance often can require debt service that inhibits a cardholder from having available resources for other purchases and payments. If a cash advance is used by a cardholder to make a security deposit payment to a landlord, the cardholder loses all buying power associated with that cash, but remains obligated to pay it back over time and at a high interest rate. As such, advanced cash that is used to make a security deposit often remains unavailable for use by a cardholder until the term associated with the security deposit ends and the security deposit amount is returned to the cardholder who may then repay his credit bill. Accordingly, if the cardholder retains the security deposit amount as a balance on his credit card for any length of time, for example, for term of the lease, the security deposit may cost the cardholder a significant amount of money.
In the consumer marketplace, with the exception of checks, personal loans, and credit card cash advances, there are no other available cash alternatives that a consumer may use to make a security deposit payment in the absence of available cash resources. In looking to the commercial marketplace, however, merchants have used letters of credit and other similar security instruments for many years. Letters of credit are issued by banks on behalf of their customers. Such letters of credit involve a promise to pay a sum certain on the part of an issuer (usually the bank) to a third party possessing a draft or other demand-for-payment document if conditions listed in such letters of credit are met. Typically, a letter of credit will be requested by a buyer of goods for the benefit of a seller in the context of a purchase and sale type agreement. It is incumbent on the buyer and/or seller to include specific terms in a letter of credit as the letter of credit will be honored by an issuing bank based on the terms found therein and regardless of the terms of the underlying purchase and sale agreement.
Although they are used in place of cash to form the basis of agreements between merchants, letters of credit are not suited for use in the consumer marketplace, especially for making security deposits, for several reasons. First of all, letters of credit are difficult to obtain and require that the buyer make special arrangements with banks. Also, a security deposit agreement absolutely requires the consent of both parties involved, i.e. the lessee and the lessor. Letters of credit, however, require only an agreement between the buyer and the buyer's bank; the seller does not necessarily have to be involved in the agreement. Security deposits require an agreement between the lessor and the lessee so that the lessor can be assured access to the security deposit in the amount agreed to for the duration of the security deposit term. Furthermore, the conventional systems that facilitate the issuance of letters of credit are not enabled to maintain and ensure a security deposit relationship between a lessee and a lessor for a term and an amount that they agree to.
Thus, there exists a need for systems and processes which allow consumers to realize greater buying power without requiring debt service. Without such systems and processes, consumers will continue to be prevented from realizing better standards of living and from acquiring access to goods and services that require security deposits. To be effective, such systems and processes must enable consumers to utilize their credit card accounts without being burdened with excessive debt service that results from high finance charges associated with revolving and outstanding credit card balances.